The Solicitors Regulation Authority has told the High Court its intervention into the practice of solicitor Soophia Khan on suspicions of dishonesty was justified because she misappropriated money.

Khan, currently in prison after being found liable for contempt earlier this month for breaching two High Court orders requiring her to deliver up client files, is seeking an order requiring the SRA to withdraw its intervention from last August into herself and her Leicester practice Sophie Khan & Co over suspicions of dishonesty and alleged rule breaches.

Khan’s barrister, Mark James, spent the whole of Thursday and Friday morning telling Sir Gerald Barling, sitting as a judge of the Chancery Division, why the regulator’s decision to intervene was fundamentally flawed and disproportionate. Rupert Allen, for the SRA, made his submissions on Friday afternoon.

James had argued that the SRA elevated a technical issue into grounds for suspecting dishonesty and ‘this was not an occasion where Ms Khan dipped her hand into client money and made off with it, a classic dishonesty case’.

However, in his submissions, Allen told the court ‘that’s exactly the suggestion being made’.

Allen said Khan put money into the office account over which another law firm, McMillan Williams, had a claim. ‘The money is no longer in their office account, to put it bluntly. £115,000-odd that she received, £80,000 that McMillan Williams wanted. The balance in the office account as at 31 December 2020 was £14,000. The money has gone. It was used by Ms Khan or the firm for its own purposes. It’s a case of misappropriation of money.’

He added: ‘Ms Khan had conduct of cost negotiations in relation to a joint bill of costs. The joint bill of costs contained about two-thirds of McMillan Williams’ costs and a third of the firm’s costs. Both firms have an interest in the outcomes of these negotiations as well as the clients. It is not in dispute that the firm received £115,000-odd from the opposing party in respect of the cost claimed in the joint bill. It is not in dispute that the total amount for the firm’s cost in the joint bill was about £68,000. So the amount Ms Khan has kept overtops the amount she claimed in the joint bill by almost £50,000. The minimum amount which Ms Khan knew McMillian Williams was prepared to settle for was just under £80,000. So, on any view, she has taken £35,000 or thereabouts. She should not have taken ... £35,000 or thereabouts from the £115,000 that she has received.

‘The payment was made for the purposes of settling the defendant’s cost liability, but Ms Khan was using it for a completely different purpose that has nothing to do with a joint bill of costs, nothing to do with the cost negotiations, nothing to do with the defendant. We say one does not have to be a solicitor to realise one cannot do that.’

Replying, James said that in relation to payment into office account, Khan had ‘contractual authority to do that under the conditional fee agreement. It gives her the right to have the money paid into her account. She is then going to have a dispute with McMillan Williams over it. But it is not evidence of dishonesty.’

Earlier on Friday, James told the court that intervention should be a last resort, ‘particularly when you have a one-person firm providing services to parts of society that struggle to find representation, cases against the police’.

Barling reserved judgment and the hearing concluded just before 5pm.